Now well over a year old, this bear market has erased almost half the value of the S&P 500 Stock index. What seemed like a simple sell signal (when the 13 EMA crossed below the 30 SMA in November of 2007) now looks like a significant pivot point in contemporary economic history.
This week, like so many of the recent past, is clouded with poor economic data and the potential for more US corporate bankrupcies. Couple this with significant job losses and its no surprise the christmas of 2008 won't be too jolly (especially on Wall Street!). Ironically enough, this is the sentiment one needs to see in order to 'put a bottom in' the stock market. The bad news is now priced into stocks and as prices suggest things are indeed bad. However, as a leading indicator, it shall be the first thing to turn up when the economy is precieved to have hit bottom. We of course shall be well aware of that potential turn as the charts often give an indication of such a turn well in advance. Using the 13EMA/30SMA cross over system is one such example.
In the short term, for the past five weeks the market has been contained within a trading range where 74.34 represents the bottom and 92.38 represents the top. Considering today is the US Fed. Reserve Meeting for December and this Friday is the December Options expiry, I wouldn't put alot of confidence in the market being where it is today come Monday or Tuesday of next week. Regardless, should the market close above or below either of these range points, the appropriate short term action should be taken.
Technically speaking, there is no bottom in the market yet. The market is now well contained within two bearish price chanels. This suggests that prices need to fall further and that any rallies should be viewed with skepticism until these chanels are broken. There is a valid bearish flag pole working which suggests prices need to hit 54.48. And until either of these events happen, one ought to sit on the sidelines and watch the economic fireworks from a comfortable cash position.
That's all for this week,
Brian Beamish FCSI
the_rational_investor@yahoo.com
the-rational-investor.com
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